Wells Fargo’s Proptech Misadventure & Blackstone's Agency Play

Wells Fargo’s Proptech Misadventure

Most retail banking products are boring – there’s only so many ways to skin a savings account – but one field with perpetual rizz is credit card rewards. Along comes a young hotshot, once dubbed the "Best Connected 21-Year-Old in the World." He’s offering a tool to empower that forgotten class of big spenders: renters. Landlords generally don’t allow rent payments by CC 💳️ , because they don’t want to eat the associated fees (2-3%). The hotshot, Bilt’s Ankur Jain, has figured out a workaround: what if the bank that issued the card ate the fees instead? 👏 Landlords, from Related to LeFrak to AvalonBay, like this.

Some banks, understandably, find this ludicrous, and pass. Charlie Scharf of Wells Fargo, however, is intrigued, despite objections from his employees. He pushes the deal through, with the bank saying that “Wells Fargo can now help renters take their biggest expense and turn it into a rewarding experience, including helping them build a path to homeownership.” Once Wells was in the mix w/ these younger renters, goes the thinking, it could turn them into mortgage customers. Top of funnel and all that.

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Wells (cont.)

The card goes viral. Not only is everyone using it, everyone is evangelizing it, since it offers referral bonuses. Jain hires longtime NMHC prez Doug Bibby to get even more landlords on board. On the back of the card’s success, Jain raises a $200M round this January, resulting in a $3.1B valuation for Bilt and billionaire status for himself. Even by Desi standards, he then has one of the all-time weddings at the Pyramids in April.

As for Wells? The bank is losing up to $10M a month on the partnership, which runs till ‘29, per WSJ. Despite not making any money on fees from landlords, Wells is paying Bilt 0.8% of each rent transaction, as well as $200 each time a new card is issued. The bank underwrote the deal on the assumption that 2/3 of the volume on the card would be for non-rent transactions; instead, it’s 1/3. Many consumers are paying off the card right away, denying Wells those sweet interest charges. The runway to mortgages hasn’t panned out, and Wells has told Bilt it doesn’t intend to renew its deal on current terms.

In the five-alarm dumpster fire that is proptech, Bilt is one of the few success stories. No one, however, not even Jain, could articulate how its unit economics work. To quote fintech investor Sheel Mohnot: “Ken Chenault [former AmEx boss and now chair of Bilt’s board] and Ankur Jain say a bunch of things that don't make sense because they can't say: ‘We have an insane deal that is losing Wells hundreds of millions of dollars.’” 🤣 

Blackstone’s Agency Play

A v interesting deal that could be the start of something bigger: Blackstone’s mortgage REIT is teaming up w/ M&T Realty Capital on a multifamily agency lending platform. The REIT generally provides 3-5Y floating-rate loans, but this partnership gives its borrowers a path to tap longer-term fixed-rate agency debt via M&T’s DUS (Fannie) and Optigo (Freddie) licenses.

Why is this happening now? Under Basel IV, a set of banking reforms set to fully kick in by next year, mortgage servicing rights will become more expensive, as banks will have to set aside more capital reserves. This means that banks may be looking to create a JV w/ deep-pocketed partners for agency deals. For Blackstone ($1T+ AUM), this could be a side door into the lucrative agency lending game, as new agency licenses are almost impossible to get.   

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Tides Defaults At Austin Complex

Tides has defaulted on a $103M loan backed by a 636-unit complex that was one of its earliest acquisitions in Austin. Its lender Rialto is moving to appoint a receiver on the property, per TRD, claiming that Tides “is either unwilling or unable to pay its property manager… multiple mechanic’s liens … and ongoing operating expenses.” Tides says that while loan mod talks with Rialto play out, the lender has “full control” of the asset and all funds from it are being “swept” 🧹 to Rialto. RPM, the property management firm that came in last summer to manage dozens of Tides assets, was allegedly not getting paid at the complex, and threatened to walk away in April, per Rialto, which is when the lender stepped in by advancing $1.1M to RPM.

“The properties are working on capital injections to pay RPM in full,” Tides’ Sean Kia told TRD. Meanwhile, his co-founder Ryan Andrade said the shortfall was due to the “mechanics of the deal [s].”

Recall that Tides has been on the hunt for a $69M pref injection, a deal it acknowledges would wipe out the majority of original shareholder equity.

(Bonus: A little rundown on Rialto here)

Quickies

• Wrote about Namdar’s Manhattan office buying spree here. Have since confirmed that Namdar is already looking to dispose of some of those assets, particularly 830 Third Ave, which it sees as a prime candidate for an office-resi conversion. “Igal is not emotionally tied to his buildings,” one source familiar said. “Everything in the company is for sale, all the time.” 😎 

• Check out our Insta for snackable CRE video breakdowns

• Ares in talks for mega-acquisition of GLP ($66B AUM)

• In Calgary, a $55 psf subsidy for office-resi conversions

• Tranche warfare and servicer shenanigans 

Postscript: Larry Gluck

Larry Gluck, who amassed an apartment empire through heavily levered bets and canny partnerships with deep-pocketed partners, and repeatedly pushed tenants past the limit, died last week from complications of ALS. He was 71, and had been in poor health for several years, but in his pomp Gluck was one of the faces most synonymous with “big landlord,” particularly in New York, and everything that comes with that: riches, tenant lawsuits, investigations, controversy.

The Bronx-born Gluck (vintage interview w/ Mike Stoler here) started off as a lawyer at RE law firm Dreyer & Traub. There, he met another brash Bronxite, Steve Witkoff, and both realized that they were smarter than many of their clients. The duo founded Stellar (Steve and Larry) Management and went to work buying up beat-up Upper Manhattan buildings, cruising the streets in a ‘78 Buick 🛺 looking for deals.

Witkoff eventually moved on to office towers, but Gluck stuck w/ apartments. In ‘05, he teamed up w/ Rockpoint to buy the 1,232-unit Riverton Houses in Harlem for $131M, making a killing through a $250M cash-out refi the following year before eventually losing the complex to foreclosure. A similar story played out at 1 of SF’s most notable complexes, Parkmerced: Gluck & Rockpoint bought it at a $700M valuation in ‘05, defaulted on its debt in ‘10, Fortress entered the picture in ‘10, and the partners sold it for $1.4B in ‘14.

“If you behave like a gentleman and don’t leave your partners and investors to fend for themselves,” Gluck told NYT in ‘11, “you will be rewarded for your loyalty.”

Unquotable Quotes